A Dangerous Cost-Cutting Prescription

Health care reform is intended to control spending, expand coverage and protect consumers. It's hard to argue with those goals, but the $64 trillion question is how to achieve them.

The conventional wisdom is that more prevention, such as widespread screening for diseases, is an important way to achieve these goals. But more isn't always better, especially in terms of lowering overall costs. Tests that have a high rate of false positives (a result that incorrectly indicates a condition or abnormal laboratory finding) will saddle government (that is to say, tax-payers) with the costs of additional testing--or even treatment--for "patients" who were healthy in the first place. And like it or not, screening for diseases we can do little to treat will neither cut costs nor protect consumers. These were the findings of a report published last year in the New England Journal of Medicine cited earlier this month by the director of the non-partisan Congressional Budget Office, Douglas W. Elmendorf. His Aug. 7 letter to members of Congress contained this conclusion from the study: "After reviewing hundreds of previous studies of preventive care, the authors report that slightly fewer than 20% of the services that were examined save money, while the rest add to costs."

At the crux of cost-control in health care is where--and where not--to cut expenditures. For example, although colonoscopies cost-effectively prevent the expense, morbidity and mortality of colon cancer, whole-body MRIs yield a high incidence of false positives and lead to unnecessary and costly workups.

Evidence-based cost-cutting isn't the forte of many members of Congress. They're better at strong-arm tactics such as extorting payoffs from special interests, and they and the president are at it in earnest, squeezing "savings" out of the pharmaceutical industry. You won't see an official pricetag on influence peddling, but $80 billion seems to be the going rate for a seat at the White House negotiating table. And that's only part of the tab: Faced with the prospect of a more expensive House plan, the industry trade group PhRMA is now doing the unthinkable: spending an additional $150 million on advertising--in August alone--to support the $80 billion shake-down, because, "Hey, it could be even worse." Speaking of worse, Democratic leaders in the House of Representatives say they still aren't satisfied and want billions more.

Congressman John Boehner nailed it in a scathing Aug. 17 letter to his former House colleague PhRMA CEO Billy Tauzin. "Appeasement rarely works in conflict resolution," Boehner wrote. "This is as true in the arena of policymaking as it is in schoolyards across America. When a bully asks for your lunch money, you may have no choice but to fork it over. But cutting a deal with the bully is a different story, particularly if the 'deal' means helping him steal others' money as the price of protecting your own."

The reduction of healthcare costs at the expense of drug companies' ability to perform research and development would be penny-wise but pound-foolish. Drugs often improve the span and quality of life in a remarkably cost-effective way, a fact of crucial significance not only to the individual patient but also to society as a whole. The responsible use of medicines modulates the total cost of health care. Innovative new medicines help to avoid costly hospitalizations; for example, a study in 2000 sponsored by the federal Agency for Health Care Policy and Research concluded that increased use of a blood-thinning drug would prevent 40,000 strokes a year, saving $600 million annually.

Without continued innovation from private drug companies--which currently spend more than $58 billion annually on research and development--even fewer drugs will emerge from an already meager pipeline, and costs will continue to rise. However, the climate for drug development is deteriorating. R&D investments per new drug introduction approximately doubled between the early 1980s and early 1990s, and only about three in 10 drugs approved by the FDA for marketing recoup their development costs.

But some members of Congress are unpersuaded and argue that profits are beside the point. A favorite--but inaccurate--claim is that "Big Pharma" spends more on advertising than on research and development, and that if they really cared about research, they'd redirect advertising budgets to R&D. While advertising is excessive, allocation of those budgets is legitimately a corporate decision. However, legislators make no secret of their desire to micromanage how private companies employ their revenues and resources (let us not forget Congress' attempts to dictate which car dealerships should not be closed), essentially turning a critical industry into a public utility.

But as economist Arnold Kling wrote, just because you run an industry as a utility does not mean it will be regulated by a Platonic philosopher-king who discerns and acts in the public interest. On the contrary, it means that you take away the consumer sovereignty of the market and replace it with the backroom deal-making of the lobbyist and legislator--very similar to the extortion of more than $80 billion from the pharmaceutical industry.

One thing about health care reform is certain: If we try to pay for it on the backs of an industry that has provided more savings and better care than any government-mandated program ever could, the outcome will be unhealthy.

Jeff Stier is an associate director of the American Council on Science and Health. Henry I. Miller, a physician and fellow at Stanford University's Hoover Institution, was an official at the FDA from 1979 to 1994. He is the author of "To America's Health: A Proposal to Reform the FDA."